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Astellas To Acquire Stem Cell Company Ocata Therapeutics At 90% Premium - What Does It Mean For The Stem Cell Sector?

Just one day after a short and uneventful third quarter earnings conference call on November 9th, Ocata Therapeutics (NASDAQ:OCAT) caught investors by surprise by announcing that Astellas Pharma (OTCPK:ALPMY), the fourth largest pharmaceutical company in Japan, would acquire Ocata for $8.50 a share, a 90% premium to the previous closing price. Ocata held the 8:30AM earnings call with no hint that a deal was in the works. At the market open following the morning call, shares traded down 11% on concerns about enrollment issues on the company's dry age related macular degeneration clinical trial, before rebounding to close down 6% to $4.46. Interestingly, it was just a month and a half ago that Ocata was the target of an SA short seller piece touting a price target of $0.00. Ocata management, and shareholders that stayed the course, surely must find satisfaction in proving the short sellers wrong.

While it is not worthwhile to do an in depth analysis of a stem cell company that will soon no longer operate independently, there are lessons to be learned and questions to be asked related to the acquisition and what it means to the stem cell sector. First, a little background on Ocata for those not familiar with the company.

It was only last year that the company changed its name from Advanced Cell Technology, Inc. to Ocata Therapeutics, Inc., to reflect the Company's focus on the development of regenerative cell therapeutics for the treatment of ophthalmic diseases. "Ocata" is a Native American name for "healer," a term associated with repair and regeneration as opposed to merely slowing the progression of disease, or treatment of symptoms. This mantra has been the hope and promise of stem cells since they were "discovered" decades ago.

The pipeline that Astellas purchased for about $360,000,000 is only in mid stage. As can be seen from this chart, the company only has two therapies in or entering Phase II:

As a background on the stem cell industry, aside from the diseases being targeted, there are a couple of broad distinctions that can be made among stem cell companies:

I. CELL TYPE:

  1. Adult Stem Cells - ((hASC)) - most common are derived from bone marrow or adipose (fat) but there are as many sources as there are body parts, e.g., dental pulp, neural, cardio, fetal, placenta, umbilical cord, etc.
  2. Embryonic Stem Cells - (hESC)- self explanatory in that the cells are derived from a human embryo. hESCs are always allogeneic, and thus, strategies to address an immune response must be part of any treatment. hESCs are still embroiled in the moral...

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